Bank of Canada

Low Interest Rates Good Reason to Lower Debt

In a press release on February 6, 2015 Lucie Tedesco Commissioner Financial Consumer Agency of Canada stated that just because interest rates have gone down, referring to the recent Bank of Canada decision to lower the overnight rate, does not mean that Canadians “should take on more debt.” In fact the low interest rates good reason to lower debt.

picture courtesy of the Financial Post

To many mortgagers (owing money borrowed on real estate) or those with loans whose payments are calculated based on the Prime rate, which in turn is calculated on the Bank of Canada’s overnight rate, low interest rates can be a double edged sword. Especially if you can’t control your spending; however if you are able to curve your appetite for borrowing, then for you low interest rates good reason to lower debt as you can pay more towards your principal and less towards interest payments.

Commissioner Tedesco went on to say that “Canadians should look at this low interest-rate environment as an opportunity to pay debt down, rather than to accumulate more, even for a larger house, a newer car or a winter vacation.” We should be realistic and be ready for when interest rates will increase.

For its part the Financial Consumer Agency of Canada has developed tools and resources to assist the consumer with managing their debt obligations and can be found at “How to Beat that Debt.”

Trusterra Mortgage is here to help. If you currently have a mortgage and are considering to consolidate your debt, or want to get the lower interest rates that are available currently, contact us to see what options are available for you and we’ll assess your current financial situation to see whether it is worth it for you to break your mortgage to refinance it or not.

Bank of Canada Rate Cut

The Bank of Canada rate cut could be just around the corner. Analysts are predicting that due to the not-so good Canadian economy outlook, there is the possibility the Bank of Canada rate cut could be more real than fiction at its next interest rate announcement on March 4, 2015.

It was the surprise of the year, and we’ve barely started the new year, when the Governor of the Bank of Canada Stephen Poloz announced last week on Wednesday January 21 that they were lowering the key lending interest rate. Not to our surprise, this week Chartered Banks and other institutional lenders begin dropping their prime lending rate in response to the Bank of Canada’s rate cut. The Prime Rate is now at 2.85%.

picture courtesy of CBC

There are several indicators confirming the poor performance of the Canadian economy, such as the Statistics Canada labor market revisions, big 6 banks not lowering their prime rate equal to the Bank of Canada’s rate cut by 25 basis points and only lowering theirs by 15 basis points and another worry is the drop in oil prices which the Bank of Canada suggests is their main concern that could potentially get worse and impact not only the Alberta economy which is largely based on the oil sand productions, but also to resonate nation wide.

It’s a wait and see game at this point. After all, in the past 5 years there were many naysayers and predictions with what will happen with the prime lending rate, but at the end it never changed until 5 years later, and to our surprise, it went down instead of up.

What are your thoughts about the recent Bank of Canada rate cut, and future ones? How do you feel the Canadian economy is doing right now and where will we be next year this time?

Variable vs Fixed rate mortgage

When trying to decide which mortgage type to go with, a variable vs fixed rate mortgage, you have to ask yourself how tolerant you are with risk. A variable rate mortgage traditionally has a better discounted rate than the fixed rate mortgage, but it can change at any time depending on what decision the Bank of Canada makes on its overnight rate. As the Bank of Canada increases or decreases its overnight rate, so too will the chartered banks and other lenders that borrow money from the Bank of Canada increase or decrease their prime lending rates, which in turn affects the variable rate.

If you don’t want to worry about interest rates going up or down during the contractual term that you have agreed upon with your mortgage, then the best bet would be to go with a fixed rate term. This way you know for sure that your mortgage interest rate is locked in and guaranteed not to change within the term. For example, if you go with a 5 year closed fixed term; your mortgage interest rate will not change until the end of the fifth year. For some, the disadvantage to this mortgage product is the fact that your rate will not go down should the Bank of Canada lower its overnight lending rate as would be the case with the variable rate mortgage product.

When contemplating whether to go with variable vs fixed rate mortgage, know that it is ultimately up to the lender to decide if they are going to change their prime rate or not every time the Bank of Canada changes their rate. Sometimes Banks and other lenders of mortgage products will choose not to change their prime rate although the Bank of Canada changes theirs. Historically though, whenever the Bank of Canada changes their overnight rate, shortly after the banks adjust their rates accordingly.

Others might be thinking to break their mortgage in the middle of the term; whether it be for the reason of selling their home to take advantage of increased equity and home value due to favorable market conditions, or because they may not be happy with the current lender or interest rate, and for any other reason. To break a fixed term mortgage is more expensive than to break a variable rate mortgage. The lenders use different formulas to calculate the mortgage penalty to break the mortgage. With the fixed term, the lenders use a formula called Interest Rate Differential, and with the variable rate they only charge the client three months of interest payments. Therefore it can be much cheaper to break a variable vs fixed rate mortgage.

When considering these matters it is always best to consult with a mortgage broker or mortgage agent. These professionals are trained, and licensed to work on your behalf and to give you unbiased and sound advice regarding your mortgage options.

Many are asking Are Mortgage Rates on the Rise?

Within the last month major Banks and other lenders have been slowly increasing their fixed term mortgage rates, and many people in Canada have been asking are mortgage rates on the rise here in Canada.

What most consumers don’t know about their question of ‘are mortgage rates on the rise’ is that as the cost of doing business goes up so too does interest rates. One example of this cost is the purchase of bonds. As the prices of bonds increase so too potentially does the interest rates on fixed mortgage rates.

Another question one can ask is are mortgage rates on the rise on the variable side of the mortgage industry? The answer to this question is that for the time being they are staying put. Variable rate mortgage rates are based on the Bank of Canada prime rate and what it charges financial institutions to borrow money from it. The Governor of the Bank of Canada has hinted — see the press release here — that for the short term the Bank of Canada will not be raising rates.

Bank of Canada Interest Rate Announcement 6 Mar 2013

Today the Bank of Canada announced interest rate announcement was release. The Bank of Canada is maintaining its target for the overnight rate at 1 per cent and the Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Here is a summary of the key points from the announcement:

1) The global economic outlook is broadly consistent with the Bank’s projection in its January Monetary Policy Report (MPR).

2) Canada’s economy grew by 0.6 per cent at annual rates in the fourth quarter of 2012. The Bank expects growth in Canada to pick up through 2013, supported by modest growth in household spending combined with a recovery in exports and solid business investment.

3) Total CPI inflation has been somewhat more subdued than projected in the January MPR as a result of weaker core inflation and lower mortgage interest costs. Low core inflation reflects muted price pressures across a wide range of goods and services, consistent with material excess capacity in the economy.

4) Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. The considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2 per cent inflation target.

Will the Prime lending rate go Up or Down

Next week on Wednesday March 6, 2013 the Bank of Canada will be announcing its decision on the target for the overnight rate. This takes place normally at the Bank of Canada’s headquarters in Ottawa Canada. Based on its recent announcements and decisions, many feel that the rate will not change in these uncertain economic times.

What do you think will be the Bank of Canada’s decision next week about whether to touch the rate or not? Share your thoughts in the comments section of this post, and also take our Facebook survey poll at www.facebook.com/trusterramortgage.